Restaurant Equipment Depreciation Recapture: A Guide
Selling restaurant equipment that has been depreciated for tax purposes can trigger depreciation recapture, an often-overlooked tax consequence that operators should understand before a sale.
What Depreciation Recapture Means
When equipment is sold for more than its depreciated tax basis, the difference up to the amount previously deducted is generally taxed as ordinary income rather than capital gains.
- Applies when equipment sells for more than depreciated value
- Recaptured amount generally taxed as ordinary income
- Relevant for equipment previously deducted via Section 179 or depreciation
- Should be factored into equipment sale planning
How This Affects Equipment Sale Decisions
Understanding potential recapture tax before selling heavily depreciated equipment helps operators accurately estimate the true net proceeds of a sale.
Working With a Tax Professional
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Depreciation Recapture Basics
| Scenario | Tax Treatment | Consideration |
|---|---|---|
| Sale price exceeds depreciated basis | Recapture up to prior deductions as ordinary income | Reduces net sale proceeds |
| Sale price below depreciated basis | Generally no recapture | Simpler tax treatment |
| Equipment previously Section 179 expensed | Recapture rules still apply | Often overlooked by sellers |